Dollarama (TSX:DOL) stock surges in market volatility, which is why over the last few years the retailer has done quite well. The pandemic led to a surge in share price given that Dollarama stock was one of the few retailers providing essential services during this time. It was therefore able to bring in money even when other retailers couldn’t.
Yet these days, it’s a bit different. Interest rate increases may soon come to an end. Inflation has already started to ease. With that, Dollarama stock has seen a decrease in the share price of 5% in the last month alone.
So, is Dollarama stock now a buy after this dip? Or are investors onto something?
Why the drop?
Dollarama stock does well in times of market volatility because it’s one of the last places that increases prices at times of inflation. This leads to a surge in customers coming in to buy items at the lowest possible price.
Yet as inflation eases and consumers get used to new prices, along with higher salaries to keep pace with inflation, the company may start to experience less customer activity. There isn’t the need to source out the cheapest options anymore, creating a path for Dollarama stock to experience a drop.
However, this is where there might be a problem for investors getting out of Dollarama stock. While the company may experience lower levels of customer activity, it’s banked plenty of cash that it can put to work. Cash that can be used to open up new locations across the country — something the stock has been working on the years now.
Looking ahead
For now, Dollarama stock continues to be a prime spot for investors to come looking for cheaper retail items. This was certainly seen during its latest earnings report. The company saw an increase of 17.1% in year-over-year comparable store sales. It also experienced 22.1% growth in earnings before interest, taxes, depreciation and amortization, which marked 28.3% of sales.
Dollarama stock saw sales increase by 20.7% to $1.295 billion compared to $1.073 billion the year before. Operating income was up by 26.2%, net earnings per share by 28.6%, and you get the picture.
But the figure I’m most interested in is the new stores opening. Dollarama stock management is smart. They’ve recognized this won’t last forever and are using the funds to open new locations. Last year, just 10 locations were opened during the first quarter of 2022. In the first quarter of this year, Dollarama opened 21 net new stores.
Looking behind
Now, the reason this is important is because we can get a picture of what the future looks like for Dollarama stock. The company has been working on new openings across Canada for years. So, by looking back, we could see how much growth the company could be in for in the near future.
Shares are up just 8% in the last year, but in the last decade, shares increased by a whopping 608%, as of writing! That’s a compound annual growth rate (CAGR) of 21.62%! This company should remain a strong player among low-cost retailers, as traction has only continued to build in the last decade or so.
So, with more consumers than ever, and more stores, it looks like Dollarama stock is definitely one to consider this month, especially with shares down 5% today.
